Analysts cut target price for LG Innotek amid smartphone market slowdown

[Courtesy of LG Innotek]

South Korean securities companies downgraded their earnings forecasts and target prices for mobile phone components supplier LG Innotek, citing a slowdown in global smartphone sales, according to their investor reports issued on Thursday.

NH Investment & Securities issued a downward revision in LG Innotek’s earnings outlook and target price, lowering it to 300,000 won ($221) from 360,000 won, due to the possibility of a slowdown in the sales of Apple’s new products in North America and pressure to cut costs.

For the third quarter of 2023, LG Innotek reported consolidated sales of 4.76 trillion won, down by 11.6 percent from a year earlier. Operating profit plunged by 58.8 percent to 183.4 billion won.

NH Investment & Securities analyst Lee Kyu-ha identified the main cause of the decline in profitability in the circuit board sector due to sluggish demand for IT devices. He pointed out the possibility of weaker-than-expected sales of recent smartphone models from clients and the increasing pressure from local brands such as Huawei in China.

Lee also expressed concerns about the upcoming new products in the next year, suggesting that hardware upgrades might be limited, and there could be significant cost-cutting efforts by clients.

Samsung Securities equity analyst Lee Jong-wook lowered LG Innotek’s target price to 270,000 won from 300,000 won while maintaining a “neutral” investment recommendation. He estimated LG Innotek’s annual operating profit for this year to be 866.3 billion won, down by about 3 percent compared to previous estimates. He explained that as initial sales of new products were relatively weak, the company could adjust its plans.

The current price-to-earnings ratio (PER) of around 9 times earnings partly reflects reality, but it could be too early to find sufficient upward momentum as the stock price has seen some corrections.

Kiwoom Securities analyst Kim Ji-san also lowered the target price to 350,000 won from 380,000 won but remained optimistic, saying that “expected orders are being maintained despite the weak demand for smartphones.”

Kim anticipated that the fourth-quarter operating profit would hit a record high of 535.7 billion won, while also predicting that this performance would be driven by an increase in the average selling price (ASP) of optical solutions, improvements in product mix, and an increase in operating rates, particularly focused on the iPhone Pro series.